Marx’s value model of capital development is a methodological device to “grasp its inner interconnections,” which cannot be observed in immediate reality. To have a theory of capital development at all, the “force of abstraction” has to transcend the semblance of competition. The abstract value-scheme reveals that, apart from competition as the driving force of capital formation, profit production already finds a limiting element in the capital-labor relationship.

In order to forestall a decline of profitability, accumulation must never rest. More and more surplus-value must be extracted; for this purpose, production must be steadily revolutionized, and markets must be continually extended. The two-fold character of commodity production as the production of exchange-value and use-value determines that the process of accumulation, and the variations in surplus-value which follow from it, will become increasingly more detrimental to the functioning of the capitalist system.

The twofold character of the commodity – as a use-value and as an exchange-value – and their movements in opposite directions in the course of the developing productivity of labor reappears on the larger social scale of capital accumulation as a conflict between the expansion of production and the expansion of surplus-value. The conflict is resolved by an accelerated capital accumulation. According to Marx, however, the resulting growth of capital is not a smooth process. Capital has the tendency “to develop the productive forces absolutely, regardless of value and surplus-value contained in it,” even though the goal of production is “the preservation of the value of the existing capital and its self-expansion to the highest limit.”^[1] When the expansion of production outruns its profitability, the accumulation process comes to a halt.

The interruption of the accumulation process constitutes the capitalist crisis. It appears as an overproduction of capital, which, for Marx, “never signifies anything else but overproduction of means of production – means of production and necessities of life – which may serve as capital, that is, serve for the exploitation of labor at a given degree of exploitation; for a fall in the intensity of exploitation below a certain point calls forth disturbances, ... crises, destruction of capital.”^[2] In terms of Marx’s abstract value analysis of capital accumulation, this would correspond to a situation in which the reduced labor-power is no longer able to reproduce and enlarge the total mass of capital. The actual accumulation process resembles the abstract value-scheme of capital development. But what in theory is the “final” outcome of an uninterrupted development appears in reality as a recurrent cycle; each cycle, so to speak, is a condensed replica of the “long-run” trend of capital expansion.

The capitalist crisis is an overproduction of capital only with respect to a given degree of exploitation. If the latter is sufficiently increased accumulation can proceed, for it was halted only because the accumulated capital proved too large in relation to the rate of profit it was able to bring forth. Because it is only by way of accumulation that the capitalists can preserve and enlarge their capital, they do so without regard to, and without the ability to regard, the necessary profitability of the total social capital, on which the profitability of all private capitals finally depends. When the rate of profit does not grow along with the mass of capital, the latter’s increasing organic composition is not offset by a greater mass of surplus value and the decreasing profitability of capital will halt its further expansion.

Marx’s descriptions of economic processes are not always the most precise, which allows for contradictory interpretations. However, as the whole of Marxian theory rests upon value theory, the validity of any particular interpretation may be judged by its fitness with regard to the law of value. Marx’s statement, for instance, that capital has “the tendency to develop the productive forces absolutely, regardless of the value and surplus-value contained in it,” may easily be interpreted as meaning that it is the expansion of the material production process itself which causes a lack of profitability. In that case, however, the fact that capitalism can overcome crisis would be incomprehensible; for it does so precisely by developing the social productive forces still further. If the productive forces outrun the value requirements of accumulation, they do so only in the sense that “the expansion or contraction is determined by the appropriation of unpaid labor, and by the proportion of this unpaid labor to materialized labor in general, or, to speak the language of the capitalists, is determined by profit and by the proportion of this profit to the employed capital, by a definite rate of profit, instead of being determined by the relations of production to social wants, to the wants of socially developed human beings. The capitalist mode of production, for this reason, meets the barriers at a certain scale of production which would be inadequate under different conditions. It must come to a standstill at a point determined by the production and realization of profit, not by the satisfaction of social wants.”^[3]

The relationship between the appropriated unpaid labor and the mass of capital can be improved only by increasing the mass of unpaid labor. This increase, in turn, leads to a further increase in the mass of capital. From the point of view of profitability, then, the crisis of overproduction represents a situation in which the existing capital is simultaneously too small and too large: it is too large in relation to the existing surplus-value and it is not large enough to overcome the dearth of surplus-value. Capital accumulation is thus both the cause of crisis and the instrument that overcomes it. The crisis sets in because the expansion of production has lost its necessary correlation with the profitability of capital, so that, from the point of view of the latter, capital has been overproduced. This lack of correlation between production and profitability can also be expressed as a discrepancy between material and value production due to the twofold character of capital production as the production of use-value and of exchange-value.

Although subordinated to the relentless drive for exchange-value, the use-value aspect of capital – as the material production process – continues to play a relatively independent part in capital production. The continued existence of capitalism shows, however, that the “internal contradiction” between use- and exchange-value does not alter the dominance and control of material production by value considerations, that this dominance becomes increasingly more precarious is historically illustrated by the increasing severity and frequency of crises and, finally, by the advent of the rather permanent crisis conditions that are now oddly celebrated as the taming of the business-cycle via conscious interferences in the market mechanism.

The effect of the use-value aspect of capital production upon the accumulation of capital comes to the fore, for instance, in the determination of the mass of additional capital required for a successful capital expansion. Only a definite amount of new capital, as determined by the amount of physical capital already in existence, will suffice for an accelerated capital expansion. This definite mass refers to total social surplus-value in relation to the total social capital. If this definite mass of surplus-value cannot be produced under the existing conditions, there can be no profitable capital expansion. There may then exist an “abundance” of investable funds which is not large enough to serve the needs of a profitable accumulation. In the real capitalist world it cannot be known, of course, whether the mass of surplus-value is adequate for the purpose of capital expansion. The relationship between the mass of existing capital and the mass of surplus-value needed to assure its reproduction on a larger scale can only be discerned indirectly, through market and price relations which signify either an expanding or a contracting economy.

This indirect discernment is inaccurate because factors not caused by a discrepancy between material production and value production may account for a downward business trend. For, in reality, “the conversion of surplus-value into profit is determined as much by the process of circulation as it is by the process of production.”^[4] Discrepancies in the supply and demand relations may hinder the realization of surplus-value even though – under different market conditions – the actually-produced surplus-value may have proved adequate for the requirements of capital formation. Be this as it may, the point is that even on the assumption that no realization problem exists, it is possible that a discrepancy between material production and value production will arise which will have to be overcome before accumulation can go on.

On the assumption that no difficulties arise in the circulation process, a sufficient mass of surplus-value would lead to the simultaneous expansion of material and value production, and an insufficient mass of surplus-value would not. The arrest of the accumulation process is, of course, the capitalist crisis, which manifests itself in a sudden decline of profitability. Once in crisis, capitalism can only resume its expansion through changes in the sphere of production which increase the surplus-value relative to the value of the existing capital. Such changes require a “starting-point” different from that which constituted the “endpoint” of the previous phase of capital expansion, for this “endpoint” proved to be a crisis-point. In other words, the new upswing presupposes both the crisis and the destruction and devaluation of capital which it brings.

The crisis leaves the use-value side of capital largely unaffected, except when the material means of production are actually destroyed, as in times of war. But it affects the value of the total constant capital through the destruction of capital-values during the crisis and ensuing period of depression. The same quantity of use-value now represents a smaller exchange-value; and the surplus-value, determined by the unaltered use-value of capital, relates itself to a smaller total value of capital. With regard to its material side, the organic composition of capital remains the same, but as regards its value side, it has been lowered. This adjustment raises the profitability of the surviving capitals.

Capital stagnation cannot have physical causes, for the existing material forces of production, as both means of production and labor power, are not altered by the crisis. Nor can it find its cause in a material overproduction of the means of production, for in this respect the world is obviously under-capitalized; not enough means of production exist to satisfy even the minimal needs of the world’s population. The turn from prosperity to depression can only be explained as a shift in value relations, that is, as a shift from a sufficient to an insufficient profitability of capital. As profits are only another name for surplus-value, or surplus-labor, the crises-cycle finds its explanation in the loss and restoration of an adequate rate of exploitation. As there was apparently no lack of surplus-value during the phase of accumulation preceding the depression the accumulation process itself, by altering the organic composition of capital, must have led to a relative dearth of surplus-value and produced the crisis. The resumption of the accumulation process indicates that ways have been found to increase the production of surplus-value in a measure great enough to neutralize the effects of the rising organic composition of capital on the rate of profit.

The rising organic composition of capital, the law of the progressive increase of the constant capital in proportion to the variable, Marx found “confirmed at every step by the comparative analysis of the prices of commodities, whether we compare different economic epochs or different nations in the same epoch.”^[5] The height of the organic composition of capital at any particular time says nothing of course, about the further prospects of capital production. Capital can accumulate with a high as well as a low organic composition of capital, so long as its rate of exploitation is correspondingly accelerated. Over-accumulation of capital relative to the exploitability of labor reduces the rate of accumulation or stops it altogether; yet the resulting crisis conditions provide opportunities for the reorganization of the total capital structure which allows for a new phase of capital expansion. The devaluation of capital relates a given mass of surplus-value to a smaller total capital. And the capital concentration which it aids plays this surplus-value into the hands of relatively fewer entrepreneurs. Less-productive capital disappears to make room for more-productive capital, and the sharper competition between remaining capital hastens the search for capital-saving and labor-saving innovations, until the increase of surplus-value makes expansion possible once more. This increase must be large enough, however, to enlarge total capital beyond the highest point of expansion it previously reached.

Although no actual crisis is predictable as to the time of its arrival and the extent of its devastation, the state of crisis can be awaited as the certain result of an enhanced accumulation process unable to maintain its necessary profitability. Because the decline of profitability, associated with a scale of production signifying an overproduction of capital, becomes apparent in the market sphere, it appears as a mere market problem, as a temporary disequilibrium of supply and demand. No capitalist can admit more, for to trace the crisis to the underlying value relations of capital production means to accept responsibility for the crisis as an economic expression of the exploitative capital-labor relations.

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1. Capital, Vol. III, p. 292.

2. Ibid., p. 300.

3. Ibid., p. 303.

4. Ibid., p. 964.

5. Capital, Vol. I, p. 682.